In this article, we discuss the 9 tech and software stocks to buy according to Hamilton Helmer’s Strategy Capital. If you want to skip our detailed analysis of the tech and software industry, go directly to the 5 Tech and Software Stocks to Buy According to Hamilton Helmer’s Strategy Capital.
Hamilton Helmer has spent his career as a practicing business strategist. At Helmer & Associates (later Deep Strategy), a strategy consulting firm he founded, he led over 200 strategy projects. Prior to Helmer & Associates, he was employed at Bain & Company. Over the last two decades, Hamilton Helmer has utilized his Strategy concepts as an active equity investor which led to him co-founding Strategy Capital. Mr. Helmer is the chief investment officer and managing partner of California-based Strategy Capital. He holds a Ph.D. in Economics from Yale University and is a Phi Beta Kappa graduate of Williams College. Mr. Helmer’s book 7 Powers was selected by Bloomberg as one of The Best Books of 2017. Mr. Helmer taught Business Strategy in the Economics Department of Stanford University for a decade.
Growth Catalysts for Tech and Software Industry
According to a report by Forrester, software will be the star performer in the 2021–2022 US tech market outlook. Software purchases will see the fastest growth, of almost 10% in 2021 and just over 11% in 2022. However, SaaS subscription revenue growth will slow in 2021 and even more in 2022 as a result of the growing popularity of single-instance cloud. Companies that want cloud solutions for their core systems are typically doing so as a single instance, causing this deployment model to grow at accelerating rates in 2021 and 2022. Forrester forecasts that the US tech budgets will expand by 7.4% in 2021 and 6.7% in 2022, raising the old predictions of the US tech budget to grow by 6% in 2021 and 6.8% in 2022.
Mr. Helmer manages over $976 million in assets through his hedge fund, Strategy Capital. Mr. Helmer made an addition to his portfolio in the second quarter of 2021 after the purchase of 510,107 shares of Cloudflare, Inc. (NYSE: NET). He also made additional purchases in the 8 stocks he owned previously. However, Helmer bought relatively more shares of Facebook, Inc. (NASDAQ: FB), Netflix, Inc. (NASDAQ: NFLX), and Amazon.com, Inc. (NASDAQ: AMZN).
Other stocks among the top 5 of the investment portfolio of Strategy Capital by the end of the second quarter of 2021 were Shopify Inc. (NYSE: SHOP), Atlassian Corporation Plc (NYSE: TEAM), and Pinterest, Inc. (NYSE: PINS).
Photo by Ant Rozetsky on Unsplash
Why should we pay attention to Helmer’s stock picks? Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017. Between March 2017 and July 2021, our monthly newsletter’s stock picks returned 186.1%, vs. 100.1% for the SPY. Our stock picks outperformed the market by more than 124 percentage points (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
Our Methodology
With this context in mind, here is our list of the 9 tech and software stocks to buy according to Hamilton Helmer’s Strategy Capital. These were ranked according to the investment portfolio of Strategy Capital at the end of the second quarter of 2021. The analyst ratings of each company are also discussed to provide readers with some more context for their investment decisions.
Tech and Software Stocks to Buy According to Hamilton Helmer’s Strategy Capital
9. Zoom Video Communications, Inc. (NASDAQ:ZM)
Helmer’s Stake Value: $35,564,000
Percentage of Hamilton Helmer’s 13F Portfolio: 3.64%
Number of Hedge Fund Holders: 59
Zoom Video Communications, Inc. (NASDAQ: ZM) provides a video-first communications platform in the Americas, the Asia Pacific, Europe, the Middle East, and Africa. The company offers Zoom Meetings which provides us with HD video, voice, chat, and content sharing through mobile devices, desktops, laptops, telephones, and conference room systems. Zoom Video Communications, Inc. (NASDAQ: ZM) was incorporated in 2011 and is headquartered in San Jose, California.
This September Citi analyst Tyler Radke reported the firm’s price target on Zoom Video Communications, Inc. (NASDAQ: ZM) at $304 and reiterated a Neutral rating on the shares.
Zoom Video Communications, Inc. (NASDAQ: ZM) is ranked ninth on our list of 9 tech and software stocks to buy according to Hamilton Helmer’s Strategy Capital. According to the latest filings, Strategy Capital owned 91,889 shares in the firm at the end of June 2021 worth $36 million, representing 3.64% of the portfolio.
As of the fiscal second quarter of 2022, Zoom Video Communications, Inc. (NASDAQ: ZM) reported EPS of $1.36, beating estimates by $0.20. Total revenue grew 54% year over year to $1.02 billion beating estimates by $31.23 million.
By the end of the second quarter of 2021, 59 hedge funds out of the 873 tracked by Insider Monkey held stakes in Zoom Video Communications, Inc. (NASDAQ: ZM) worth about $8.48 billion. This is compared to 54 hedge funds in the previous quarter with a total stake value of approximately $5.67 billion.
Artisan Partners, in their first-quarter 2021 investor letter, mentioned Zoom Video Communications, Inc. (NASDAQ: ZM), and shared their insights on the company. Here’s what they said:
“We concluded our campaigns in Zoom Video Communications. We have been paring our position in Zoom for several quarters, anticipating the reduced need for video conferencing as vaccination rates climb and people return to their workplaces. That said, we believe there is a strong case to be made that the pandemic has prompted a permanent inflection in videoconferencing’s importance—sustainably higher remote work arrangements, more online learning and less business travel. Furthermore, the company’s dramatically expanded user base (up 485% YoY in Q3) positions it well to cross sell additional services, Zoom Phone in particular. The long-term future remains bright, but we decided to end our successful investment campaign in favor of opportunities in our pipeline with more attractive near-term growth prospects.”
8. Datadog, Inc. (NASDAQ:DDOG)
Helmer’s Stake Value: $37,082,000
Percentage of Hamilton Helmer’s 13F Portfolio: 3.79%
Number of Hedge Fund Holders: 56
Datadog, Inc. (NASDAQ: DDOG) provides a monitoring and analytics platform for developers, information technology operations teams, and business users in the cloud in North America and internationally. The company’s SaaS platform integrates and automates infrastructure monitoring, application performance monitoring, log management, and security monitoring to provide real-time observability of customers’ technology stack. Datadog, Inc. (NASDAQ: DDOG) was incorporated in 2010 and is headquartered in New York, New York.
In August 2021, Morgan Stanley analyst Sanjit Singh raised the firm’s price target on Datadog, Inc. (NASDAQ: DDOG) from $120 to $150. The analyst also reiterated an Overweight rating on the shares of Datadog, Inc. (NASDAQ: DDOG).
Datadog, Inc. (NASDAQ: DDOG) is ranked eighth on our list of 9 tech and software stocks to buy according to Hamilton Helmer’s Strategy Capital. According to the latest filings, Strategy Capital owns 356,293 shares in the firm as of June 30 2021 worth $37.1 million representing 3.79% of the portfolio.
In the second quarter of 2021, Datadog, Inc. (NASDAQ: DDOG) had an EPS of $0.09, beating estimates by $0.06. Datadog, Inc. (NASDAQ: DDOG) reported revenues of $233.5 million, up 66.81% year over year and beating estimates by $21.11 million. Datadog, Inc. (NASDAQ: DDOG) has gained 56.55% over the past 6 months and 50.33% year to date.
By the end of the second quarter of 2021, 56 hedge funds out of the 873 tracked by Insider Monkey held stakes in Datadog, Inc. (NASDAQ: DDOG) worth roughly $3.23 billion. This is compared to 44 hedge funds in the previous quarter with a total stake value of approximately $2.38 billion.
Artisan Partners, in their first-quarter 2021 investor letter, mentioned Datadog, Inc. (NASDAQ: DDOG), and shared their insights on the company. Here’s what they said:
“We also added to Datadog. Shares of Datadog retreated in Q1 in sympathy with the broader information technology sector. However, the company remains on solid fundamental footing, recently setting a quarterly record for net new customer additions. Datadog’s cloud solutions fill a void left by legacy tools built for on-premise IT infrastructures, enabling it to take share in an underpenetrated, large addressable market. We believe the company’s low-touch land-and-expand customer acquisition model, combined with a steady expanding product portfolio, position it well for strong profit and cash flow growth in the coming years.”
7. Cloudflare, Inc. (NYSE:NET)
Helmer’s Stake Value: $53,990,000
Percentage of Hamilton Helmer’s 13F Portfolio: 5.52%
Number of Hedge Fund Holders: 43
The newest addition to Strategy Capital’s investment portfolio, Cloudflare, Inc. (NYSE: NET) ranks seventh on our list of the 9 tech and software stocks to buy according to Hamilton Helmer’s Strategy Capital.
Cloudflare, Inc. (NYSE: NET) operates as a cloud platform that delivers a range of network services to businesses worldwide. The company provides an integrated cloud-based security solution to secure a range of combinations of platforms, including public cloud, private cloud, on-premise, software-as-a-service applications, and Internet of Things (IoT) devices. Cloudflare, Inc. (NYSE: NET) also offers performance solutions, which include content delivery, intelligent routing, and mobile software development kit, as well as content, mobile, and image optimization solutions. The company serves customers in technology, healthcare, financial services, consumer and retail, and non-profit industries, as well as the government. Cloudflare, Inc. (NYSE: NET) was incorporated in 2009 and is headquartered in San Francisco, California.
In August 2021, RBC Capital analyst Matthew Hedberg raised the firm’s price target on Cloudflare, Inc. (NYSE: NET) from $100 to $130. On top of this, the analyst keeps an Outperform rating on the shares.
Based on the latest 13F filings, the Hamilton Helmer-led Strategy Capital purchased 510,107 shares of Cloudflare, Inc. (NYSE: NET) during the second quarter of 2021. These shares are worth $54 million which in turn represents 5.52% of Strategy Capital’s investment portfolio.
In the second quarter of 2021, Cloudflare, Inc. (NYSE: NET) had an EPS of -$0.02 beating the EPS estimate of -$0.04 by $0.02. During the same period, Cloudflare, Inc. (NYSE: NET) reported revenues amounting to $152.4 million, up 52.85% year over year and beating estimates by $6.33 million. The share price of Cloudflare, Inc. (NYSE: NET) has gained 68.20% over the past 6 months and 69.46% year to date.
By the end of the second quarter of 2021, 43 hedge funds out of the 873 tracked by Insider Monkey held stakes in Cloudflare, Inc. (NYSE: NET) worth roughly $862.5 million. This is compared to 45 hedge funds in the previous quarter with a total stake value of approximately $792.4 million.
Much like Shopify Inc. (NYSE: SHOP), Facebook, Inc. (NASDAQ: FB), Atlassian Corporation Plc (NYSE: TEAM), Pinterest, Inc. (NYSE: PINS), Amazon.com, Inc. (NASDAQ: AMZN), Netflix, Inc. (NASDAQ: NFLX), Zoom Video Communications, Inc. (NASDAQ: ZM), and Datadog, Inc. (NASDAQ: DDOG), Cloudflare, Inc. (NYSE: NET) is a stock worth investing in according to Hamilton Helmer.
Alger, an investment management firm, published its “Alger Mid Cap Focus Fund” second quarter 2021 investor letter. The fund mentioned Cloudflare, Inc. (NYSE: NET), and discussed its stance on the firm. Here’s what they said:
“Cloudflare provides a broad range of network services to businesses of all sizes across the world. Cloudflare’s intelligent global network spans more than 200 cities in over 100 countries. It offers network security, performance and reliability to a growing portion of global web traffic with over 17% of global internet requests going through Cloudflare. The company’s serverless network design allows this global network to be a key component layer as new developments for edge computing, 5G and the Internet of Things increase the importance of secure, reliable edge networks.
Cloudflare stock outperformed in the second quarter following a strong earnings report for the first three months of this year during which the company reaccelerated revenue growth. This revenue reacceleration was driven by momentum in Cloudflare’s large customer segment. Cloudflare added a record number of large customers who now account for more than half of Cloudflare’s total revenue. We think that Cloudflare is currently still in the early stages of market penetration, which means it has potential to maintain high levels of growth within its large customer segment as the company continues to innovate within its product offerings to better serve these large, complex customers. Cloudflare’s leadership in product innovation was further validated by the company’s second quarter announcement of a new partnership with NVIDIA Corporation to develop Al-based applications on Cloudflare’s edge network.”
6. Netflix, Inc. (NASDAQ:NFLX)
Helmer’s Stake Value: $92,103,000
Percentage of Hamilton Helmer’s 13F Portfolio: 9.42%
Number of Hedge Fund Holders: 113
Netflix, Inc. (NASDAQ: NFLX) provides entertainment services. It offers TV series, documentaries, and feature films across various genres and languages. The company provides members the ability to receive streaming content through a host of Internet-connected devices, including TVs, digital video players, television set-top boxes, and mobile devices. Netflix, Inc. (NASDAQ: NFLX) also provides DVDs-by-mail membership services. The company has approximately 204 million paid members in 190 countries. Netflix, Inc. (NASDAQ: NFLX) was founded in 1997 and is headquartered in Los Gatos, California.
On September 8, 2021, JPMorgan analyst Doug Anmuth raised the firm’s price target on Netflix, Inc. (NASDAQ: NFLX) from $625 to $705 and reiterated an Overweight rating on its shares. The streaming service closed Tuesday up $16.18 to $606.71.
Based on the latest 13F filings, the Hamilton Helmer-led Strategy Capital holds 174,368 shares of Netflix, Inc. (NASDAQ: NFLX) as of the second quarter of 2021. These shares are worth $92.1 million which in turn represents 9.42% of Strategy Capital’s investment portfolio. Netflix, Inc. (NASDAQ: NFLX) ranks 6th on our list of the 9 tech and software stocks to buy according to Hamilton Helmer’s Strategy Capital.
In the second quarter of 2021, Netflix, Inc. (NASDAQ: NFLX) had an actual EPS of $2.97, missing estimates by -$0.19. Netflix, Inc. (NASDAQ: NFLX) reported revenues amounting to $7.34 billion, up 19.41% year over year, beating estimates by $17.14 million. The share price of Netflix, Inc. (NASDAQ: NFLX) saw a growth of 13.40% over the past 6 months and 12.83% year to date.
By the end of the second quarter of 2021, 113 hedge funds out of the 873 tracked by Insider Monkey held stakes in Netflix, Inc. (NASDAQ: NFLX) worth roughly $13.2 billion. This is compared to 110 hedge funds in the previous quarter with a total stake value of approximately $14.1 billion.
Similar to Shopify Inc. (NYSE: SHOP), Facebook, Inc. (NASDAQ: FB), Atlassian Corporation Plc (NYSE: TEAM), Pinterest, Inc. (NYSE: PINS), Amazon.com, Inc. (NASDAQ: AMZN), Zoom Video Communications, Inc. (NASDAQ: ZM), Datadog, Inc. (NASDAQ: DDOG), and Cloudflare, Inc. (NYSE: NET), Netflix, Inc. (NASDAQ: NFLX) is a stock worth investing in according to Hamilton Helmer.
Polen Capital, an investment management firm, published its “Polen Focus Growth” second quarter 2021 investor letter. The fund mentioned Netflix, Inc. (NASDAQ: NFLX) and discussed its stance on the firm. Here’s what they said:
“For Netflix, we believe the underlying businesses for the company remain strong. With Netflix, we anticipate content spending to moderate as subscriber growth continues, which we believe should result in attractive double-digit earnings and cashflow growth over the next five years and beyond.”
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Disclosure: None. 9 Tech and Software Stocks to Buy According to Hamilton Helmer’s Strategy Capital is originally published on Insider Monkey.
